Paris (MNI) – European Central Bank President Mario Draghi said
Thursday that the ECB’s first three-year refinancing operation has been
effective in combating a credit crunch.
“We see signs that this money doesn’t seem to be staying in the
deposit facility,” Draghi said, referring to the ECB’s facility in which
banks can park funds overnight. “This money circulates in the economy.”
The ECB allotted E489.191 billion of 3-loans at its LTRO operation
in December, much more than most market participants had expected.
Draghi added that he expected “substantial demand” at the bank’s second
3-year LTRO in February.
Draghi said that banks depositing funds in the ECB’s overnight
facility were “by and large” not the same banks borrowing in the
three-year LTRO. Borrowing in the LTRO was more dependant on the amount
of debt banks had coming due, Draghi said.
In fact, deposits at the ECB have been extremely high in recent
days, setting new records several days running. But they fell yesterday
by about E15 billion from the previous day’s level — an event that some
analysts have associated with today’s highly-bid auctions by Italy and
Spain.
Among other signs that the ECB’s reinforced liquidity operations
have been effective, Draghi noted that interest rates have been
“dropping substantially if not dramatically all along the yield curve.”
He also noted that the market for unsecured bank bonds has begun
functioning again.
Asked if the more positive financing conditions would cause the ECB
to cut back its bond buying in the secondary market, Draghi said that
the “interbank market is still not functioning.” He added that we are
“really at the beginning of this process.”
— Paris newsroom, +331-4271-5540; jduffy@marketnews.com
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